DV Journal

The City of Chester is in danger of dissolution due to its dire financial situation.

It has been in Pennsylvania’s Act 47 Financial Recovery Program since 1995. That law allows the commonwealth’s Department of Community and Economic Development (DCED) to monitor Chester’s books, come up with a recovery plan, and offer financial aid that will be repaid.

So imagine Mayor Thaddeus Kirkland’s surprise when the city was told the state expected it to pay more than half a million dollars in fees to attorneys looking over its retirement system. He expressed his outrage at the August 9 city council meeting.

“Now, all of a sudden, we done hit the lottery y’all,” he told the council. “We couldn’t get any of these services, and you know why? Because they didn’t want us to provide you with the help that you needed. And they convinced people in this city to attack us and then turn around and give their behinds to kiss.”

The Receiver for the City of Chester, Michael Doweary, said the city has the ability and the duty to make those payments. Doweary’s critics point out he put Chester into Chapter 9 bankruptcy last November, repeatedly insisting the city’s finances were a disaster.

A judge accepted the bankruptcy filing in March, but Doweary went even further, suggesting the city could be dissolved. Doweary’s chief of staff previously told DVJournal that Chester needs $5 million to make payrolls in January 2024.

Now he wants Chester to pay up.

Chester’s biggest financial anvil? Retiree benefits. Federal bankruptcy court documents list the city’s unfunded pension plan balance at $127 million. It also owes the retirees $232 million in healthcare benefits.

A Retiree Committee was formed in February that quickly hired Flaster/Greenberg and Jenner & Block, two high-profile law firms, as representatives. Those lawyers racked up approximately $520 thousand in bills. The Committee sent it to Doweary. He turned to outgoing Chester Mayor Thaddeus Kirkland, telling him the cash would have to come from the city.

“The City is legally required to pay these legal fees subject to a reasonableness test,” said Doweary in an email to Kirkland. The mayor relayed the message to the city council last week. “I am, therefore, at this time, approving the payment of $100,000 per month going forward to the retiree professional group as a whole for the payment of fees.”

Kirkland feels otherwise, vowing the city never promised any money. He said it was Doweary who made the offer.

The Kirkland-Doweary relationship runs the gamut between heated (Doweary went to court over city officials’ salaries) and downright hostile (Kirkland once used a racial slur toward Doweary).

So, where did Doweary come up with the cash in his offer to the Retiree Committee in May? That is what Kirkland wants to know, given all the predictions of Chester’s fiscal doom.

Chester’s Official Retiree Committee hopes a federal bankruptcy judge will step in. Its attorneys asked the judge this week to tell the city and Doweary to show them the money.

“The Receiver represented to the Retiree Committee that the City could pay the fees and expenses of the Retiree Committee’s professionals and, implicitly, made the same representation to the Court by filing the Compensation Procedures Motion.,” said court documents filed Monday in bankruptcy court. “The Receiver was undoubtedly aware of what the City’s 2023 budget provided for when the Receiver filed the Compensation Procedures Motion. Whatever constraints there may be in that budget, these are not new developments. Therefore, the City’s bait-and-switch should be prohibited under the doctrine of judicial estoppel, as well as equitable estoppel and similar doctrines.”

The Committee’s attorneys accuse Doweary and his staff of not answering certain questions regarding the payments.

“On July 12, 2023, the Retiree Committee’s Professionals met via video conference with Ballard Spahr and Vijay Kapoor of Kapoor & Co. (the Receiver’s chief of staff) to discuss the issues raised in the letters… On July 27, 2023, the lead financial advisor to the Retiree Committee further discussed the issues with Mr. Kapoor and proposed a potential solution. To date, the Receiver has not responded to the proposal.”

The committee’s lawyers suggest Pennsylvania’s government may need to pony up funds. “If the City cannot fund the Chapter 9 process, it must look to the Commonwealth to meet its obligations in this case. The Commonwealth cannot properly avail itself and the City of the benefits of Chapter 9 bankruptcy while simultaneously failing to provide for the payment of the professionals who have been administering this case for the benefit of the City’s stakeholders.”

Their suggestion involved asking the Pennsylvania government to provide “debtor-in-possession financing” to Chester, specifically tied to “a liquidity or monetization occurs” involving the city’s water and sewer assets. Court documents claim Doweary and DCED balked at the suggestion.

“Initially, the Receiver refused to even broach the subject with the Commonwealth, opting instead to file the Compensation Procedures Motion,” said Committee attorneys in their filing. They contend that Doweary and DCED discussed their proposal last month but decided to play legal games. “It is unclear how enthusiastically the Receiver advocated for this concept (neither the Retiree Committee nor its Professionals were invited to participate in that discussion), but the DCED flatly rejected the proposal without offering any other solutions.”

Kirkland is pretty sure that Doweary is the one doing bait and switch. “I said it then, and I’ll say it now,” he told the City Council last week. “They said that we were going to be disincorporated…and all of a sudden, we got money to pay these bills. Legal fees for the retirees…over a half million dollars. But, some people fell off the okey-doke when they said that disincorporation stuff.”

He noted that disincorporation hadn’t been mentioned since he lost the Democratic primary in May.

The Receiver’s Office declined to respond to multiple requests for comment.

A spokesperson for Pennsylvania Governor Josh Shapiro referred questions on how much money Chester needs to clear out its debt to the Receiver’s Office. The spokesperson gave the same answer when asked where Doweary found the money.

Doweary remains in good favor with the state. “The Shapiro Administration supports the extension of Michael Doweary as the Receiver,” said a DCED spokesperson in a statement. “The Department of Community and Economic Development’s Secretary filed the application with Commonwealth Court on July 25, 2023, to extend Chester’s receivership and Michael Doweary’s term as receiver for an additional two years.”

“How much money have they brought to this city to help this city financially?” asked Kirkland during last week’s city council meeting as he unloaded a rhetorical machine gun at Doweary. The Receiver did not appear before the council. “But we listen to this crap…to these folks that come in here and shove garbage down your throat, and we eat it. And they say it’s the truth when they’re lying to your faces.”

Please follow DVJournal on social media: Twitter@DVJournal or Facebook.com/DelawareValleyJournal

Department of Community and Economic Development Secretary Rick Siger asked a judge last week to extend Michael Doweary’s tenure overseeing the city of Chester’s finances. Court documents show the DCED is convinced Chester will remain in a state of fiscal emergency “for at least the next two years.”

Doweary, who was appointed to the job three years ago by former Gov. Tom Wolf, was supposed to exit his position at the end of December.

Chester city officials like outgoing mayor Thaddeus Kirkland and Councilwoman Elizabeth Williams have made no secret of their hostility toward the state-appointed receiver. According to testimony and court findings, Kirkland called Doweary the “N” word, told him to “watch your back” and “your days are numbered.” Williams called Doweary a “slave master.”

Kirkland later apologized for his comments.

City officials have also gone to court to challenge Commonwealth Court Judge Ellen Ceisler’s January order that Doweary needs more control over city finances. DCED’s legal filing to Pennsylvania’s Commonwealth Court noted the state Supreme Court has yet to make a ruling in that case.

The filing said that a federal bankruptcy judge ruled in March the city was “eligible as a debtor” and for release under Chapter 9 bankruptcy. It included finding that the city met the definition of insolvent under the Bankruptcy Code because it didn’t pay debts when they were due or was “unable to pay its debts as they become due.”

Doweary previously told the DVJournal that Chester faces “a significant fiscal cliff” in 2025 because its “financial situation is critical, and it is running out of time to find a solution.”

The DCED defended Doweary’s time as Chester receiver, praising him for working with Chester elected officials and taking “many positive steps on the road to financial recovery.” That included hiring a chief of staff to run the government and suggesting that a chief financial officer (CFO) be hired in the future.

The state also blasted Chester officials, accusing them of financial mismanagement and lack of audited financial statements. Court documents show Doweary discovered the last audit was done in 2017 and only completed audits for 2018 and 2019 because of “the persistence of the professionals on my team.” Those audits painted the picture of a city in dire financial straits, with Siger claiming that Chester had a general fund revenue loss of around $6.8 million and a balance of negative $27.7 million.

A 2020 audit is ongoing.

Under those conditions, the state saw it as crucial to keep Doweary in power. “[T]he Receiver’s function and duties are still not complete, and the continuation of Receivership and the Receiver’s presence is critical to fully implement the 2023 Modified Plan and to bring the bankruptcy proceedings to a successful conclusion,” wrote DCED attorneys. “Such an extension is necessary if the city is to have any chance of recovering.”

Chester’s pension obligations were also mentioned as a reason for keeping Doweary on the job. An affidavit by Doweary claimed the city owes almost $40 million total to its Fire, Officers and Employees, and Police pension plans.

Most of the money is meant for the Police Pension Plan which, according to Doweary, was severely underfunded just a few years ago. “[The pension plan had] only $1.75 million in assets…when I was appointed in June 2020,” Doweary said in the sworn statement. “The $1.75 million in assets was sufficient to pay a mere three months’ benefits to current retirees. There is now $8.4 million in real assets as of June 2023.

City officials had hesitated to reduce pension outlays despite its massive weight on the budget. Doweary claims he’s been in mediation with the city’s unions, Retiree Committee, other creditors on some kind of solution to the Chapter 9 bankruptcy issues.

But Chester residents may not need to worry about higher taxes. Doweary has said he wants to avoid raising the earned income tax rate above the current 3.75 percent rate. That’s second in Pennsylvania, only to Philadelphia.

Chester’s government has had a major upheaval since its financial woes became public. Councilman Stefan Roots defeated Mayor Thaddeus Kirkland and real estate broker Pat Worrell in May’s Democratic primary for mayor. Roots does not have a Republican opponent in November’s general election.

Kirkland did not return a call for comment on Pennsylvania’s request to keep Doweary as Receiver.

It is not known when the Commonwealth Court will rule on the DCED’s request.

The state Fraternal Order of Police and the Delaware County Council filed  friend of the court briefs in support of the Chester Receiver in a case pending in the state Supreme Court.

The Receiver is seeking to strip local elected officials from their roles as heads of city departments and instead appoint what he believes are qualified individuals to run Chester. That would affirm a January decision by a Commonwealth Court judge.

The FOP legal brief brandishes harsh wording, blaming Mayor Thaddeus Kirkland and city officials for the city’s dire financial straits. The county’s brief uses more measured language, saying it has a vested interest in Chester’s recovery.

“The recovery plan will be the only way the municipality will get back on its feet,” Delaware County said in its brief. “The only alternative to a successful Act 47 process is chaos. The Commonwealth cannot allow one of its cities to devolve into chaos.”

In her January ruling, Judge Ellen Ceisler blasted city officials for nepotism and self-dealing. She ordered them to step down and allow the Receiver to appoint qualified individuals to run the city’s departments.

“Unfortunately, the promise of a secure pension has been broken by the City of Chester,” the FOP brief said. “This matter involves, among other acts of malfeasance, the complete and utter failure of the city to comply with the statutory requirements relating to the financial solvency of defined benefit pensions for law enforcement officers such as those employed by the City of Chester and all law enforcement officers through the commonwealth.”

That has resulted in a $40 million deficit in the police pension plan, the filing stated. The deficit threatens the financial security of former and current police officers who are and have been employed by the city. The city’s conduct provides no realistic hope that “it will change its methods of operations and make the required MMO (minimum municipal obligation) payments.”

It also accuses the mayor of failing to make the payments with “full knowledge and intent.”

The county noted that other financially distressed cities, such as Harrisburg and Johnstown, have gone through the process with state control and come out of it with their problems resolved.

“This is a very important case, and it’s clear from the FOP’s and Delaware County’s filings that it’s not just the Receiver who recognizes that,” said Vijay Kapoor, chief of staff for Receiver Michael Doweary.

Last month Doweary said Chester’s government might have to be disincorporated or dissolved if it does not come out of insolvency by the end of the year. Former Gov. Tom Wolf appointed Doweary to help the cash-strapped municipality three years ago. But Doweary has claimed in court filings that city officials have thwarted him at every turn.

Frank Catania, a lawyer for the Chester Water Authority, said there is more to this situation than the court documents might suggest. Chester has been under state oversight for decades, said Catania. And instead of improving, the situation has gotten much worse.

“There’s a dispute as to how much of that (lack of retirement fund payments) is the city’s fault and how much of that is the state’s fault,” said Catania. “And neither filing addresses the issue of the state’s involvement or responsibility.”

“And I think it’s not fair to the city or the mayor to have him blamed for this when the city has been under Act 47 supervision for almost 30 years,” said Catania. “I mean, all of this happened when the state was supposedly overseeing (it),” he said. And about the county council’s filing, “It’s more politics than policy,” he said.

Council wants “regime change” in Chester, said Catania. “This is being done 13 days before the primary.”

“And I don’t read it as an expression of support for any particular policy,” said Catania. “I believe it to be a political act.”

Mayor Kirkland did not respond to requests for comment.

The state Supreme Court is set to hear arguments in the case on May 24.

Please follow DVJournal on social media: Twitter@DVJournal or Facebook.com/DelawareValleyJournal

Commonwealth Court Judge Ellen Ceisler unloaded on Chester city leaders in a ruling expanding the state Receiver’s power over the financially-strapped government, accusing elected officials of nepotism and incompetence. While she did not grant Receiver Michael Doweary everything he wanted, she extended his authority to include the right to remove city council members from their city jobs and “put experienced professionals in their place.”

One example noted by the receiver was Councilman William Morgan, who fell for a phishing scheme that lost $400,000 in city funds. He failed to tell the Receiver about the loss for months.

“Councilmember Morgan can no longer serve as the head of finance and human resources,” the judge ruled. Ceisler also pointed to nepotism in her ruling, saying, “At the hearing, Receiver recounted that, at one point, the mayor’s former son-in-law, Ronald Starr, was placed in charge of economic development.”

While city officials and the Receiver all recognize the need for economic development, Ceisler wrote, “By all accounts, the only progress Mr. Starr made on that front during his tenure was to obtain a liquor license for one of his businesses.”

The state appointed Doweary to help the financially troubled city regain footing.  But he appealed to the Commonwealth Court, which has jurisdiction over him, for more control, claiming that city officials are not cooperating.

Ceisler agreed, vehemently.

“The Court concludes that all of this evidence, viewed together, demonstrates the city officials’ continued lack of transparency and lack of cooperation with (the) Receiver and his team. Even worse, Mayor Kirkland has verbally – and publicly –threatened and disrespected Receiver on more than one occasion,” Ceisler wrote.

According to testimony and court findings, Mayor Thaddeus Kirkland called Doweary the “N” word, told him to “watch your back” and “your days are numbered.” And Councilwoman Elizabeth Williams called Doweary “slave master.”

Other issues that arose during the three-day hearing included payments to a former employee in jail on child rape charges and a police chief who allowed his friends to work excessive overtime in the last year before retirement to increase their retirement pay.

The judge also agreed with Doweary’s request to have the city’s chief operating officer become its chief administrator to provide a “clear chain of command” for employees.

“We are grateful for the court’s decision which we believe brings desperately needed clarity to city operations and the ability to ensure professional management all to the benefit of City residents,” said Vijay Kapoor, chief of staff to the Receiver for the City of Chester.

Kirkland referred all questions to township solicitor Ken Schuster.

Schuster said, “The city and the elected officials are carefully reviewing the Court’s decision.”

Doweary has also filed a separate bankruptcy case on behalf of the city, which is ongoing.

Frank Catania, the lawyer for Chester Water Authority, said his organization is watching the Receiver’s actions closely after attempts to pull the authority’s assets into a resolution of the city’s financial crisis. He said he does not know if the allegations about city officials are true, but he found the timing curious.

“If the Receiver’s description is correct, then this has been a problem for months — years, really. But they get this ruling now, just weeks before the filing period opens to get on the ballot for the upcoming municipal elections?”

The first day to circulate and file nomination petitions is February 14.

“You can’t ignore the fact that this is an election year, and the judge isn’t doing these city officials any favors. The timing is curious, at least,” Catania said.

Please follow DVJournal on social media: Twitter@DVJournal or Facebook.com/DelawareValleyJournal

The Chester Water Authority (CWA) and Chester County chalked up a win in its ongoing legal battle with the Receiver for the City of Chester.

The bankruptcy court judge handling the bankruptcy case filed by Receiver Michael Doweary on behalf of the City of Chester ruled on Nov. 23 the CWA is not part of another case brought by the receiver pending in Commonwealth Court.

In the ruling by Judge Ashely M. Chan, the receiver agreed the word “authority” in the Commonwealth Court amended recovery plan does not include the CWA.

Chan stayed the CWA’s case that was to be heard by the state Supreme Court on Nov. 30. But motions to permit the high court to hear the case were filed and will be heard mid-December.

“We believe the state Supreme Court should be the one to decide it,” said CWA lawyer Frank Catania. CWA is fighting for survival against the state-appointed Receiver’s attempts to sell it to Aqua PA. And even if he succeeded, Catania said, “it is an undecided — and vigorously disputed — as to what money, if any, the city would get from a sale of CWA.”

The city of Chester has a long history of financial turmoil stretching back 27 years. During that time, it has been under the financial authority of four receivership regimes authorized by the Pennsylvania Municipalities Financial Recovery Act of 1987.

“Since 2017, the City of Chester has attempted to monetize the assets of the CWA, an authority that services more than 200,000 ratepayers, the vast majority of whom reside outside the boundaries of the City, including more than 34,000 ratepayers residing in Chester County where critical infrastructure is also located,” Delaware County argued in a legal filing. CWA supporters believe the Receiver had his eye on the authority and his requests to the courts reveal his intentions.

The receiver had “asked the court for permission to take over and run any authority that the City of Chester created. That’s all it said. It didn’t say, ‘not us [CWA],'” said Catania “So clearly we were concerned. If the judge gave a broad interpretation of the language, that would include us, and the Receiver has no business trying to run a water company, right?”

Opposition to Chester’s attempts to sell the CWA to Aqua PA is bipartisan in the Delaware Valley. In addition to Democratic opponents on the county council, two GOP state reps previously filed an amicus brief last month to oppose the sale.

“Act 73 of 2012 abolished Chester city’s control over the CWA board. It is outrageous to suggest that years later, the city can override the clear intent of the Legislature, take control of CWA, and sell it to the highest bidder. I am grateful that the Supreme Court has agreed to review this matter, and I will continue to fight to prevent any takeover of Chester Water Authority,” said Rep. John Lawrence (R-West Grove).

Lawrence, whose constituents in Chester and Delaware counties are served by CWA filed the brief with House Speaker Bryan Cutler (R-Lancaster).

“The CWA board has steadfastly and responsibly served the hundreds of thousands of customers who rely on this municipally provided service,” Cutler said. “The Commonwealth Court’s ruling undermines the board’s rightful position to continue to recognize the best interest of its customers and sets a dangerous precedent for all water consumers in the Commonwealth. We strongly urge the Pennsylvania Supreme Court to take a closer look at this case.”

And the state Supreme Court is where CWA supporters want this case heard, while the Receiver has tried to get the Commonwealth Courts to make the decision.

“Doweary would rather have the issue heard before a single judge in a different case where the Chester Water Authority is not a party. That’s what he was trying to do. Then the next step in his plot—a hostile takeover– was on the day before Veteran’s Day. That’s when the city filed for bankruptcy, with no prior warning.”

“The Receiver has a nasty habit of trying to pull holiday surprises,” Catania added. “So we’re always on a heightened state of readiness around the holidays.”

“He failed, but he’ll try again,” said Catania.

The receiver did not respond to a request for comment on Tuesday.

Please follow DVJournal on social media: Twitter@DVJournal or Facebook.com/DelawareValleyJournal